Negotiating your first mortgage? Check out these tips

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It’s been a tough journey but you are now ready to join the ranks of the home owning class. You’ve cleared your debts, saved enough money for a reasonable down payment, gone through open houses and found the perfect home. Your offer has been accepted and you have two months to seal the deal! This is the part where many first time home buyers get around to arranging their mortgage.

Believe it or not, many people spend more time researching a cellphone purchase than their mortgage. With something this important you have to do the background work. The good news is that mortgage competition is fierce and you can get away with negotiating better terms on rates if you have the proper knowledge.

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One thing to think about is that the rates posted at your bank or the ones you see online are just a starting point. These rates are not only high, they are also likely to come with tight restrictions on making lump-sum payments and high fees when leaving the mortgage before renewal.

Here’s our list of five things to remember as you prepare:

Start early and be ready

The main bank you go to will be more than happy to do a basic mortgage pre-approval document for you, but you will need more than that to close the deal. You will need an updated personal credit score, tax assessments from the previous two years, and a detailed accounting of your income, including debt.

You will need enough cash on hand,along with your down payment, to cover closing costs (for legal fees, mortgage insurance, title insurance and land transfer taxes). You should also be ready to pay utility deposits in your new home as well as budget for maintenance fees.

Have a strategy in place and a product in mind

At this point, a mortgage broker comes in handy. Remember, however, that they are paid by the financial institution to whom they bring your business and not by you. Get to know the mortgage basics: learn about how fixed–rate mortgages compare to variable-rate and the difference between closed and open mortgages. Research the various terms that are available.

This is where you need to determine how important features like pre-payment options and break fees are to you and your budget. If you have a large sum of cash, you should consider a flexible mortgage that does not restrict you from making lump-sum payments. If you may be getting a raise, choose pre-payment features that let you to increase your payments without penalty.

Think about what works best for you

If you could be starting a family or are due for promotion that involves moving to another city, you could be upgrading sooner rather than later. Unexpected life events, like an illness or divorce, may also contribute to you paying a big break fee, which is essentially a penalty for leaving your mortgage early. Definitely ask the lender about their break fees. Hidden or vague break fee policies are the most common complaint in regards to mortgage products.

Don’t be intimidated as a first time home buyer or feel pressured to accept a cookie-cutter mortgage that might look cheap but comes loaded with costly restrictions.

Shop around

First time home buyers looking for a mortgage will most likely automatically go to where they do their routine banking.

Experience is important. Some institutions are more experienced than others. Some will help shape a product based on the information you provide. That information should include your future financial goals and a payment schedule to reach that goal. Your financial plan needs to reflect how much you are putting away for retirement, children’s education, or investing in home improvements, etc.

Keep in mind you have leverage

In a nutshell, the mortgage lending market is very competitive and that makes first time home buyers the most ideal clients. Your first mortgage is not just a big loan of money. It will be an important factor in determining your net worth, lending risk and ability to plan your financial future. There’s a lot on the line. You can save yourself so much money in interest rates alone. Your negotiating skills could make the difference between being able to make or miss your mortgage payment.